Tuesday, April 23, 2024
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Let’s leave for the green fields and beyond


IT is Groundhog Day. Imagine, Boris Johnson is the new PM, as he should have been and nearly was over three years ago. Once again the wreckers in Parliament are trying to block the UK leaving the EU and Gina Miller is taking a court case.

Amber Rudd has flip-flopped again with the political characteristics of a break dancer. She serves a useful purpose in reminding me why there are so few politicians that I respect. At least her brother, the oleaginous Roland Rudd, is entirely consistent in his trenchant and skilful opposition to Brexit, but I guess he needs someone on the inside.

Of course, it is perfectly respectable to be opposed to Brexit. Ken Clarke has been entirely open and consistent. He opposes our exit and he opposes referenda. He supports Parliamentary democracy instead, the same Parliament that voted for a referendum to be held, for Article 50 to be triggered, and in the vast majority a Parliament which stood at the last election on manifestos that said we were leaving the EU on 29 March, including extracting ourselves from the single market, the customs union and the jurisdiction of the European Court of Justice. Yet here we are again as he and Grieve and possibly others like Gauke will oppose a clean-break Brexit. Shall we say partial democrats with dubious integrity, if integrity is to be measured by internal consistency?

They are not alone, as Labour abandon their five million Leave voters wholesale in opposing our exit, in becoming the official main Party of Remain.

Meanwhile the Lib Dems have never given losers’ consent to the greatest democratic mandate in living memory, liberally ignoring democracy.

So, imagine this what our new PM and the country faces. Groundhog Day with bells on!

Worse, all of this Brexit stuff is becoming toxic. Trench warfare, with occasional cries of ‘gas, gas, gas’ as each side spouts lots of hot air.

If only the protagonists were able to take a step back and realise their passions are damaging democracy and the nation to the point of destruction of our institutions and of trust in our political system. Countenance the practical reality of Brexit.

There is no doubt that the democratic outcome was that Leave won the referendum and that Remain lost. But for democracy, the country, society itself to work, it requires losers’ consent. The alternative is that both sides lose much more than the democratic losers can currently, it appears, imagine.

Take a step back. There is no doubt that leaving on WTO terms, a clean break, carries risks. But then life carries risks, and while action is risky, so is inaction.

What if we were to remain and the EU banking system, still so fragile and propped up by the ECB, still printing money to buy toxic assets, were finally to go pop? Our exposure to the debts of the European Investment Bank run into hundreds of billions of euros. What of our commitments to the EU cohesion funds which would seek to spread the load of propping up the EU economy in such a scenario? Even if Germany and France never let the defunct system reveal itself, the ECB will eventually need to socialise that bad debt by spreading the cost amongst EU taxpayers, especially net contributors, including the UK.

What if we were to do nothing and remain in the EU and its torpid pace and stifling protectionism were to lead to a continuing growth rate of around 1 per cent pa? That would mean slipping perpetually down the league tables of national wealth both collectively and in GDP per capita terms, until we become a third-rate country, a minnow which was once a great nation, in the mode of Greece or Spain. Should we accept this? Is it inevitable? Why so? If we adopt different policies and a different approach it surely need not be so. It is entirely in our own hands, frightening as that might be to our third-rate political class and our self-serving, vested interest driven, ‘I’m all right Jack’ corporate big wigs.

Leaving carries risks and its success very much depends on the policies adopted by the government of the day.

A clean break could lead to more friction in trade with the EU, albeit exports to the EU are associated with just 8 per cent of UK businesses and account for just 13 per cent of the economy. But nonetheless there are hazards to be overcome, especially if there is no desire to have a free trade arrangement on the part of the EU, for political reasons. Admiral Byng springs to mind, in this case execute Britain to encourage the rest.

By contrast the Commonwealth economy, post-Brexit, will already be two thirds the size of the EU in nominal terms and larger in PPP terms. Within the next fifteen years it will have outstripped the EU in nominal terms, given current growth rates. Leaving has its risks, yes, but there is a world out there and we managed to trade in it when trade was blown around by the wind; now we have the internet super-highway.

Almost certainly the value of sterling will further reduce post-Brexit, which will introduce short-term inflationary pressures. This is seen as a further risk by Remainers.

It will all be very inconvenient for the multinationals, especially as so many of them are foreign-owned and care less about the UK than they do for their home countries.

But the risk again comes from doing nothing. Doing lots points to an exciting and dynamic future.

Away from the stifling bureaucracy and protectionism of the EU project, we can create a dynamic and entrepreneurial economy and aspire to world average growth rates of 3 to 3.5 per cent.

The reduction in sterling value will pay dividends in the medium term, single-handedly boosting exports and reducing remittances, thus rebalancing what is currently an unsustainable balance of payments regime. We can then concentrate on the hard yards of export support and less on the lazy policy of direct inward investment, too often aka ‘selling the family silver’. But this can be a benefit only if the Bank of England and Government signal that it is not a flash in the pan, but likely to persist for some time. Then longer-term investment in manufacturing wil boost that part of the economy that provides the largest growth per buck and in turn boost the regions. It will likely require no increase in interest rates, the buying of foreign currency and lower levels of inward investment. But even a few words in the right direction may suffice. I am not sure our current Governor is a man of few words, however.

This background would have an effect on rebalancing the economy towards manufacturing and thus towards the regions, in a way that six years of George Osborne’s ‘March of the Makers’ never managed to do, in fact signally failed at. Not more unsustainable welfare for the regions, but a dynamic and growing economic boom, real wealth creation. Only investment in manufacturing, energy and software can really achieve this.

Alone a competitive currency is not enough; as the economy booms sterling will eventually rise. For investment and growth to take place, the post-Brexit government will need to ensure there is a radical change in respect of access to finance for new and for growing businesses. Bearing in mind that most innovation comes from individuals and that 83 per cent of businesses are family owned or run, this means business owners being able to avail themselves of long-term, patient loan capital at reasonable rates, in addition to risk capital, in the way that this is available in other countries. As long as commercial banks are unprepared to provide this, it may mean state-backed loans, possibly a state-backed business bank along the lines of Germany, the USA and many others.

As we will no longer be in the customs union this future, post-Brexit, government will be able to reduce or remove tariffs on imported components and goods at will and unilaterally. This should be executed judiciously and over time, as it will provide such a high-octane boost to the economy as to be too rich a fillip all at once. Starting with those things that will help manufacturing plus consumer goods and food where the greatest savings can be obtained and that we do not currently produce ourselves, or do not produce in seasons, the cut in tariffs will mimic much of the benefit of trade deals but without any need for a negotiation. Disposable income or/and savings will rise and the economy/wealth will grow. It will be a massive boost for the many, not the few. Ironically the Labour Party are pursuing exactly the opposite.

Much of the above will cost nothing in terms of Government spending, but will generate revenues. The availability of funds released by leaving the EU creates further opportunities for our future government. There is of course the famous and already allocated £39billion, a significant proportion of which we should certainly save and be able to utilise elsewhere as a one-off. Because of its nature it should be allocated to an industrial investment fund and deployed for infrastructure investment, particularly digital connectivity. The Brexit Party have suggested adding to this up to £100billion by cancelling HS2.

An annual saving of the net contribution of around £13billion should provide ample scope for tax cuts, both personal and business, and further stimulate economic growth. Again the Brexit Party has suggested further savings by halving the overseas aid budget, around another £7billion pa to be applied. This would still leave the UK in the top echelon of overseas aid providers in percentage of GDP terms, which indicates how bizarre our current establishment/ministerial virtue signalling really is.

The stimulation of the economy will lead to a boost to total tax revenues which means some of the pressing, public sector spending shortfalls can then be tackled: crime, defence, health services and education. Money gives a cushion for necessary reform in many of these areas.

All in all taking a risk, seizing the opportunities of Brexit, looks very exciting and is likely to be less of a risk than doing nothing and accepting terminal decline. Many corporate, bonus-driven salarymen will prefer the supposed certainty of the status quo. They probably don’t trust the politicians and civil servants to be competent to deliver a new model economy for Britain, for that is what it will take. They have a point. They prefer technocratic mediocrity, especially as they have a vested interest in no change. Most entrepreneurs and business owners I know are completely up for it: they are natural risk-takers. They recognise that the politicians and civil servants only need to create a favourable environment for the winners to pick themselves, and all boats will rise on that tide.

This does not just apply to businesses. As it happens a clean Brexit will mean Britain is a winner amongst nations, no longer in decline and with the people of the UK reaping the rewards of a growing GDP per capita.

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John Longworth
John Longworth
John Longworth is Chairman of the Independent Business Network of family businesses, a former Conservative MEP and was previously Director General of the British Chambers of Commerce.

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